(Bloomberg Markets) -- At a new 400-acre research-and-development center on China’s south coast, Huawei Technologies Co. engineers chat, tap at their phones, or chill out on a small electric tram that whirs them between buildings modeled variously on the Sorbonne or England’s great universities. They move through neighborhoods built in the style of Versailles or Renaissance Italy, passing by some of the 3,000 gardening and maintenance staff needed to keep the vast parklands immaculate.It’s late July, and on this Disneyland-like corporate campus about an hour and a half’s drive from Hong Kong, Huawei seems to be basking in the wealth from its leadership in 5G mobile technology. No other company has done more to project the image of a technologically advanced China on the international stage. And no other company stands as a greater symbol of China’s engagement with the outside world.Huawei’s vaulting ambition to be at the forefront of future-defining technologies has landed the company in the crosshairs of the U.S. and other governments that see it as a conduit for the geopolitical objectives of the Chinese Communist Party. In mid-August the U.S. Department of Commerce, at President Trump’s direction, handed down yet another round of restrictions aimed at cutting Huawei’s access to commercially available computing chips it needs to make 5G base stations and smartphones.The fortunes of China’s largest technology company by revenue are entwined with a vast project that’s now the front line of the hugely consequential tech war between the U.S. and China: the Greater Bay Area, a region tasked by President Xi Jinping with pushing the nation toward global technology leadership.The GBA’s ability to innovate and integrate enough to succeed in that task is facing its stiffest challenge yet from a U.S.-led global backlash against Chinese tech and Beijing’s political crackdown in Hong Kong. If the GBA’s companies can surmount the obstacles being placed in their path, they could well determine how advanced and prosperous China can become under Xi.The Pearl River Delta—long one of China’s richest and most economically dynamic regions and rebranded by Xi as the Greater Bay Area—stretches from the forested hills around Zhaoqing in the northwest to the concrete towers of Hong Kong Island in the southeast. It’s the epicenter of Xi’s strategy to attain high-income status, bind the former colonial centers of Hong Kong and Macao into the motherland, and complete what he calls the “rejuvenation” of the Chinese nation. He wants this region of about 70 million people to rival the clusters of Tokyo Bay or San Francisco-Silicon Valley and the role they play in driving innovation, entrepreneurship, and growth.Huawei reflects Xi’s grand vision for the Pearl River Delta. But as pressure from the Trump administration grows, executives of the company, which had a record $122 billion in sales last year, show signs of recognizing the changing, narrowing world in which they’re now living.Guo Fulin, a two-decade veteran of the company who ran parts of its business in Europe and is now its president of international media affairs, deploys gnomic understatement to describe Huawei’s predicament. “The star in the sky will shine either to the west or to the east,” he says, meaning there will be opportunities for Huawei whether the U.S. slams the door shut or not. “We are not targeting every customer in the world. Customers who choose Huawei will eventually live better.”With his actions—restricting sales of high-end semiconductors to Huawei, banning Americans from doing business with Tencent Holdings Ltd.’s WeChat app—Trump threatened revenue and product development at China’s most innovative companies. The importance of that is magnified by the timing of his actions, which come as China is upgrading its industries, with many sectors still in need of expertise from abroad to complete the development Xi expects.China’s leaders maintain their public commitment to the open, globalized world economy that’s benefited the nation so handsomely over the past two decades. But Xi is also adopting inward-looking ideas of self-sufficiency in a shift back to an industrial model less integrated into global supply chains. That’s not necessarily in China’s interest, says David Dollar, a former U.S. Treasury emissary to the country who’s now a senior fellow at the Brookings Institution in Washington. “The danger is if you feel you have to respond to the U.S. protectionism with Chinese protectionism,” he says. “If you go down that road, then all this aspiration to become a more innovative economy is pretty hopeless.”The Greater Bay Area strategy is rooted in an earlier time in Xi’s chairmanship that was all about China going out into the world through investment, acquisitions, and geopolitical partnership-building through initiatives such as the “Belt and Road” enterprise. First mooted by Shenzhen local authorities in 2014, and then elevated into a central government policy blueprint unveiled last year, the plan outlines the ambition to build a tech hub to “target the most advanced technologies and industries in the world.”Far from Beijing and close to the open sea, the Pearl River Delta has long been China’s most mercantile and innovative place. The crowded islands that form Hong Kong and Macao remain separate jurisdictions even today, with their own laws, currencies, and political traditions shaped by the legacy of British and Portuguese colonialism. In Hong Kong, the differences between local society and the political culture across the border are a major source of friction, with hundreds of thousands of people in Hong Kong taking to the streets in often violent protests last year to push back against increased control by the Communist Party.Standing among the futuristic towers of Shenzhen, just across the marshy borderland from Hong Kong, it’s easy to imagine the goal of technological leadership being within reach. In this city, mythologized as rising from a mere fishing village to a global metropolis within four decades, companies with a genuine claim to world leadership have their home.More than a dozen Fortune Global 500 companies in the Guangzhou-Hong Kong-Shenzhen conurbation help drive a trillion-dollar economy that exports more than Japan does. The region spends double the national average on R&D, and Shenzhen alone accounts for more than a fifth of China’s high-end exports.Huawei began in 1987 with its founder, Ren Zhengfei, repeatedly crossing the border, importing telephone switching gear from Hong Kong that he then resold to customers in China who were desperate for upgraded communications. Today the employee-owned company has sales in about 170 countries. At its corporate headquarters in Shenzhen, lavish reception rooms for visitors are modeled on Japan’s old Kyoto, with refreshments intended to make executives feel at ease before being pitched for deals on telecom hardware.But the list of nations that see Huawei as a proxy for China’s geopolitical ambitions is growing. Following the U.S. lead, the U.K. is banning the company from its next-generation 5G networks and requiring that Huawei technology already installed in existing equipment be stripped out by 2027. Australia has shut the company out, as has Japan. India may curb Huawei and its tech neighbor in Shenzhen, ZTE Corp., from its networks as relations between the two states deteriorate.This kind of tech decoupling could cost the world economy some $3.5 trillion in wasted output over the next five years, according to a report in July by Deutsche Bank AG. The costs arise from extra R&D, demand disruption, and supply chain rerouting that would become necessary if the current flow of know-how and parts—much of which already passes through China—shifts permanently.That’s already happening at Huawei and, more broadly, in China. Huawei says that Trump sanctions enacted in May, which forbid companies using U.S. technology from supplying the Chinese company, cut it off from about 2% of its imported parts, which can’t be sourced elsewhere. To be able to completely replace lost technology could take Huawei an additional five to eight years, it says; outside estimates point to 10 years or more. That’s “a big loss for us,” Yu Chengdong, chief executive officer of Huawei’s consumer business group, said publicly in August.Chinese leaders have frequently said that pressure from the outside will make the nation redouble its efforts to catch up technologically. There’s evidence that a broad push is under way to increase research and design capacity. Initial public offerings by Chinese semiconductor companies had raised a record $10 billion as of August as companies seek to localize supply chains.That’s exactly the kind of duplication of effort that Deutsche Bank warns of, and there’s no guarantee that local companies can make up for what they’ve lost from the outside anytime soon. That could leave the GBA in the position of being a leading tech hub within and for China’s domestic market, but falling short of playing that role for the world.Even as U.S. actions have hurt some tech companies in the Greater Bay Area, the Covid-19 pandemic has boosted others. The headquarters of Shenzhen Mindray Bio-Medical Electronics Co. is an appropriately clinical-looking, 35-story tower in Shenzhen’s Nanshan District. It manufactures, among other products, the SV800 and SV300 series of medical ventilators vital to treating patients severely affected by Covid-19.The company’s three founders—including Li Xiting, a Singapore resident who was already the city-state’s second-richest man—had added about $17 billion to their combined wealth this year as demand soared. Mindray Vice President Huang Haitao says the company, which plows 10% of revenue back into R&D, aims to break into the global top 20 of medical equipment companies and push the industry’s frontiers into automation and artificial intelligence.But Mindray, which says its medical equipment is used in the Johns Hopkins Hospital in Baltimore and at Mayo Clinic campuses, may not be immune from U.S. targeting forever. In August, as part of his presidential campaign, Democratic Party candidate Joe Biden vowed to end American reliance on Chinese medical equipment. “Some parts of our equipment are manufactured in the U.S.,” Huang says. “For the sake of supply chain safety, we’ll abide by all American and international laws. At the same time, we’re also actively developing backup plans, which include looking for alternative suppliers.”Innovation in the GBA is driven largely by companies, not universities, making the pace of progress more susceptible to the business cycle and the fortunes of any individual company. There is no Berkeley or Stanford here. China’s best minds in science, technology, engineering, and mathematics still graduate from Tsinghua and Peking universities in the capital and Fudan University in Shanghai, thousands of kilometers away.That’s an issue singled out by Eric Guo, chief artificial intelligence scientist at Guangdong Oppo Mobile Telecommunications Corp., the world’s fifth-largest smartphone manufacturer. The 36-year-old former Microsoft Corp. researcher has a Ph.D. from Purdue University in Indiana.Sitting in corporate offices soon to be superseded by headquarters designed by Zaha Hadid, Guo praises the quality of life in Shenzhen. He points out that branches of China’s top-flight colleges are coming to Shenzhen, but more needs to be done, because the beauty and efficacy of university research is that it’s not constrained by making money in the short term. “Universities are the engines of innovation,” he says.Less than 20 miles away, in central Hong Kong, it was university students who took to the streets during the summer of 2019, protesting first against a law that would erode the legal separation between the former British colony and the mainland, and then more generally against Beijing’s rule over the city.In many ways, Hong Kong is doing what it’s always done—getting on with doing business with China—and it’s still the funnel through which most foreign direct investment flows into the wider GBA. But large parts of its population now see closer ties with the mainland as anathema, and rising tensions have divided a community that might have been expected to help knit together the GBA’s future economy.That doesn’t bode well for what many in the business community see as the best long-term growth opportunities for either Hong Kong or the Greater Bay Area. “Hong Kong’s role is getting GBA companies to go global—a kind of adapter,” says Ben Simpfendorfer, founder of consulting firm Silk Road Associates. “Hong Kong needs to retain its connectivity to international markets.”Beijing still pledges allegiance to the constitutional principle of “one country, two systems,” but the implementation of a national security law this past summer drew a quick response from the U.S., which removed a long-standing special trade privilege Hong Kong had enjoyed. That in itself “deepens pessimism” about the long-term business prospects in the city, according to a statement issued by the American Chamber of Commerce.Policymakers in Beijing are plowing ahead with measures to ensure Hong Kong continues to play its role as the offshore financial center of the Greater Bay Area. The so-called Wealth Management Connect, for example, was announced in June, allowing residents in Hong Kong, Macao, and Guangdong to invest across the border.But uncertainty is riding high. Nicholas Kwan, head of research for the Hong Kong Trade Development Council, stresses that without an open and connected business and political environment, the city can’t play its proper role in the broader strategy. “We can’t just be part of China,” he says. “We also have to be part of the rest of the world.”Some would say the same of the Greater Bay Area. As it was when Deng Xiaoping opened the region to foreign investment four decades ago, China’s dynamic south has once more been handed the role of driving the nation’s rise. But in an era when China, like Huawei, is being challenged on all sides, grand economic growth projects like the GBA have no guarantee of success, and Xi’s plans for the region now hang in the balance. —With Edwin Chan, Gao Yuan, Venus Feng, and Iain MarlowBlack covers economics in Hong Kong. Wan is Shenzhen bureau chief. Zhu covers economics in Beijing. For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Working from home, once jokingly dismissed as “shirking” from home, is back as a pandemic lifeline for economies amid a resurgence of Covid-19 cases in Europe. Governments in Britain and France, having goaded workers back to the office after lockdown, are now urging them home again. The sound of frustrated bosses gritting their teeth can be heard across the City of London, as big firms from Goldman Sachs Group Inc. to Citigroup Inc. pause the back-to-work push while keeping the office open.There’s a sense of whiplash among white-collar workers, who just weeks ago were told that it was time to put the economy first and get back to their cubicles and open-plan desks. There should also be palpable relief. Being able to pull in a salary while safe at home is a privilege hospital staff, care workers and supermarket cashiers can’t have.Still, we know from the first wave of lockdowns that those stock images of remote workers logging on from bed with a smile and tousled hair, or of barefoot parents deftly bouncing toddlers on their knee while firing off an email, are a fantasy. While surveys suggest working from home is popular among employees crushed by the grind of the daily commute, the grumbling of CEOs that productivity and company culture are vulnerable isn’t entirely wrong.The mass push to work from home earlier this year was unprecedented. It represented an estimated 42% of the U.S. labor force (or more than two-thirds of economic activity when weighted by contribution to GDP), but it had drawbacks. The apparent productivity gains of being at home instead of on the subway began to look more like the result of a steadily lengthening work day, according to multiple network operators, rather than supercharged efficiency.Juggling Zoom calls and childcare made matters far worse, one reason governments in Europe put so much emphasis on reopening schools this fall. “We are home working alongside our kids, in unsuitable spaces, with no choice and no in-office days,” Stanford economist Nicholas Bloom said in March as he warned of a looming “productivity disaster.” He’s usually much more positive: His past research has linked working from home to a 13% rise in performance and a 50% drop in employee departure rates.While corporate bean counters dream of one day dumping costly commercial real estate for digital offices in the cloud, the reality of the cost of living in big cities means home offices aren’t up to scratch. More than half of Americans working from home do so from shared rooms or bedrooms; more than one-third have poor internet connections or none at all. A June survey of Japanese workers found that even among early adopters of remote work, only a third found it more productive than working in the office, citing poor equipment. Deutsche Bank AG’s monthly survey of financial-market professionals found their assessment of whether they were on balance more productive or less productive at home declined from 20% in June to 11% in September. (It had plunged to -13% in April as everyone was forced home full-time all at once.) That’s the short-term assessment. We don’t yet have evidence of mass remote work’s impact of longer term on company productivity, but the current outlook is mixed at best. It’s hard to see how the field of research and development — already being thinned out by recession-related cuts — is going to win out in this environment. Given there’s little freedom right now to create a hybrid model combining office and home — the preferred option for the majority of workers surveyed at French carmaker PSA Group, for example — bosses should do more to make the work-from-home experiment palatable and safe for all involved. Subsidizing utility bills, workspace equipment like ergonomic chairs, and even expenses such as rent (as one Swiss firm was ordered to do in May) would increase satisfaction. Managerial habits should also change, with more trust given to employees, if companies are serious about attachment to “culture.”The right to disconnect, which had begun to spread worldwide before the pandemic, is critical. The output gains of remote work come from contented and engaged workers, not the cheaper transaction cost of being able to hire, fire and manage via the Internet.None of this is to idealize the world of physical offices, so easily skewered by the likes of Scott Adams’s Dilbert. And complaining about neck pain, or bosses constantly “checking in” online, might ring hollow to medical staff and delivery drivers who are on the frontlines. But given remote work is now such a critical lifeline for the economy, it would be a shame to let the current experiment fail as others have before. Choosing between your job and your health is a grim trade-off, and one that really shouldn’t exist in a pandemic like this one.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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